Question

1. Ms. Hafsa, a hair stylist, she is been working in a well reputed Salon in Nizwa for more than 5 years, recently she has decided to start up her own Salon. She plans to set up a salon in a back room in her home. She will be the only worker in the business, and she will fund its expenses entirely from her own savings. She has come to you for choice-of-entity advice, and she would like to know specifically whether she should incorporate, form an LLC, or take other formal action.

1. First of all, if Ms. Hafsa takes no legal action and just starts up her business, in what form of business will she be operating? (0.5 mark)
2. What are the pros and cons for Ms. Hafsa of incorporating? (0.5 mark)

2. An Omani company located in Muscat has a factory building that originally cost the company OMR 250,000. The current fair value of the factory building is OMR 450,000. The Manager would like to report the difference as a gain. The write-up would represent a violation of which accounting assumption or principle. ( 1 marks)

Answer 1

Ms. Hafsa is the only owner and herself a worker of an entity. In view of her scenario, following answers are stated:

a) LLC (Limited Laibility Company) is a hybrid form of partnership and compnay. To form a partnership, there must be atleast two persons. Therefore, Ms. Hafsa should incorporate her entity as a Sole Proprietorship.

b) Pros of Sole Proprietorship = It is easy and less expensive to form this type of business entity. Complete control and profits are available to the sole owner.

Cons of Sole Proprietorship - The proprietor would be personally liable for all the financial liabilities of the business.

The Omani company violating the Revenue Recognition Principle. As the Revenue Recognition principle is concerned with the gross inflow of cash, receivables and other receipts from ordinary course of business.